Factor Input Prices Research Articles

The long‐run implications of the production smoothing model of inventories: An empirical test

AbstractThis paper provides an empirical test of the long‐run implications of the production smoothing model of inventories, the dominant framework for inventory investment research in the past. Intertemporal models of a firm holding inventories of finished goods predict a long‐run relationship between inventories, shipments, factor input prices, and the real interest rate which is tested here using cointegration test procedures. These tests provide little support for the predictions of the production smoothing model. In most of the data sets used, test statistics indicate that inventories, shipments, factor input prices, the nominal interest rate, and the inflation rate maintain a long‐run equilibrium relationship but parameter estimates of cointegrating vectors are often implausible, typically rejecting hypotheses implied by structural models of the production smoothing motive for holding inventories.

Interrelated demands for buffer stocks and productive inputs: estimates for two-digit manufacturing industries

Empirical estimates of interrelated factor demand equations for inventories, labor inputs, capital stocks, and unfilled orders in selected two-digit industries are provided. This framework is more comprehensive than previous research as it disaggregates inventories by stage of fabrication, accounts for production-to-stock and production-to-order, and disaggregates capital and labor inputs. All estimated decision rules display stock-adjustment effects, but there are asymmetries in the parameter estimates that are puzzling. There is evidence that factor input prices have a role in explaining stock levels, but own-factor price effects are largely absent. Evidence is uncovered that stocks are sensitive to expectations errors attached to output demand. Copyright 1990 by MIT Press.

Interrelated Demands for Buffer Stocks and Productive Inputs: Estimates for Two-Digit Manufacturing Industries

Empirical estimates of interrelated factor demand equations for inventories, labor inputs, capital stocks, and unfilled orders in selected two-digit industries are provided. This framework is more comprehensive than previous research as it disaggregates inventories by stage of fabrication, accounts for production-to-stock and production-to-order, and disaggregates capital and labor inputs. All estimated decision rules display stock-adjustment effects, but there are asymmetries in the parameter estimates that are puzzling. There is evidence that factor input prices have a role in explaining stock levels, but own-factor price effects are largely absent. Evidence is uncovered that stocks are sensitive to expectations errors attached to output demand. Copyright 1990 by MIT Press.

Inflation, Corporate Growth, and Corporate Leverage

M The effect of inflation on firms' financing and investment decisions has been a recurring topic of analysis. Attention has been devoted to both the managerial implications and the security valuation consequences of broad-based upward movements in nominal product and factor-input prices.' A generally separate stream of research has dealt with the equilibrium rate of growth a corporation can sustain, given its operating characteristics.2 Because the two topic areas have only occasionally intersected, there are some influences of inflation on the investment opportunities and financial strategies of the growing firm that we feel have yet to be fully appreciated. We attempt to address those here. Our objectives are both pedagogical and analytical. We synthesize various elements of prior research and extend the content of that research, within a unified framework. The analysis is differentiated from previous literature by a more thorough treatment of the effects of the corporate income tax, asset turnover, fixed asset replacement requirements, and corporate debt and liquidity policies on sustainable growth. We thereby provide a more complete statement of the conditions under which inflation will preserve a firm's real growth opportunities. The potential implications of those conditions for the corporate leverage decision are then examined.

Adjustment Lags, Economically Rational Expectations and Price Behavior

source and the extent of lags in the response of prices to changes in various explanatory variables. Knowledge of the relevant lag patterns is of obvious importance for forecasting movements in prices and for formulating policies that are designed to reduce the rate of inflation. In the recent empirical literature on prices, the model most commonly used to specify price equations is the static neo-classical model of price formation.1 This model presumes that the representative firm behaves as if it were a simple monopolist that faces competitive factor input markets. The firm is assumed to set its price so as to maximize current profits. The model yields the proposition that the firm's long-run optimal price depends on expected normal factor input prices and variables, e.g., expected real income, that shift the firm's demand curve. Lags are introduced into the pricing process of this model in two ways. Some authors2 focus on expectation formation lags whereby normal factor input prices or variables that shift the firm's demand curve are related through distributed lags to past values of the variable being forecast. Often, the distributed lag is assumed to be

Hospital cost per case: analyses using a statewide data system.

In this paper, we establish relationships between hospital cost per case and the independent variables; case mix complexity, case mix severity, factor input prices, and hospital characteristics. Two hundred and sixteen thousand discharges from Maryland's acute general hospitals are grouped into 383 Diagnostic Related Groups which are used to compute an information theoretic measure of case mix complexity. Multiple linear regression equations are developed which predict up to 88% of the variance of between-hospital cost per case. The most highly significant predictors of cost per case are complexity, patient age, proportion of high risk patients, average length of stay, and nonphysician salary levels. Two distinct groups of hospitals, metropolitan and rural, are defined and models are developed for each. We discuss the implications of these findings for the identification and regulation of unexpectedly high cost hospitals and for prospective cost per case reimbursement.

Partial Subindexes of Input Prices: The Case of Computer Services

A frequent lament of economists concerns the poor fit between available price statistics and those price index numbers required for analysis. Economists have recognized for quite some time, as in Moorsteen [17], that input price indexes and output price indexes are both useful constructions. For the most part regularly published price indexes are, if they have a theoretical foundation, industrial output price indexes, indexes of labor input costs, or approximations to true-cost-of-living indexes. Here we explore the construction of an input price index for capital services. The specific example we consider is an input price index of computer services, a of the prices of all inputs. While there are some peculiarities associated with computers which affect our study, the methodology involved in producing the appropriate has general application. An index of the prices of the services of a heterogeneous subset of capital goods which is independent of the prices of other factor inputs is called, using the terminology of Pollak [19], a partial subindex of input prices. Such an invariant will not always exist. Solow [22] and Hall [15] have shown, as Berndt and Christensen [2], under the assumption of constant returns to scale in the underlying production function, and the assumption that the total output produced is the sum of the outputs produced on the capital stocks of the various vintages, that this price index exists if and only if an invariant aggregate index of the stock of these capital goods exists. Fisher [10; 11] has shown that this invariant capital aggregate exists, maintaining these two assumptions, if and only if the differences between the various vintages of capital of which the aggregate is to be formed are capital-augmenting. That is, the production function must be of the form